There are many people especially in the commonwealth countries who have difficult in understanding public sector budgeting. This research paper provid...
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BUDGETING IN A PUBLIC SECTOR
Definition • A budget is a quantitative expression of a plan of action prepared in advance of the period to which of relates. • A budget expresses what is to be undertaken next year and authorizes the financial recourses that are needed.
OBJECTIVES OF ANNUAL BUGDET
1. The establishment of the required income • It must be noted that in the public sector come from taxes, charges and fees that are levied by the government. Budget income is arrived at by examining the current levels of income and the level of expenditure for the coming year.
2.Planing Service expenditure levels
Authorization of expenditure • Money must be spent on what has been authorized in the annual budget.
4. The Central of Expenditure
5.A Common action device
6. Focus attention • The budget process focuses attention on the future. It there fore makes the service manages plan method and cost of service delivery.
7. Motivation of Managers • The managers are motivated by the budget but more so if they played the role in formulating it. There is therefore alll attachment that is created.
Revenue Budgets It must be understood that most compelling reasons for revenue budget is to determine the income level and the expenditure levels. For services that are funded through taxation and charges, the central government need to fix the level of taxes and charges to be levied.
Line Items Budgets -1.0 This type of budget places its emphasis on the nature of the income and expenditure.
Disadvantage • Cannot identify the amount allocated to each individual service and would therefore fail to reflect the planned level of activity for each service.
Program Budget Structure • This type of budgeting places its emphasis on the purpose of expenditure e.g. crime prevention, mental health care etc. • This approach is believed to lead to better planning and control because recourses could be allocated more precisely to specific activities and actual achievements could be monitored more effectively.
Capital Budgeting • If a public sector organization is be successful in achieving its objectives it is to give consideration to planning of capital expenditure. • A Useful approach to the problem of planning and controlling expenditure is to develop capital programs which express the overall plan of start , medium and long term capital schemes, and reveal the allocation of priorities between different parts of the organization.
APPROACHES TO THE BUDGETARY PROCESS We shall consider four modules that any public sector can choose from
1. Incremental /Department • This model bases next years budget on current results plus extra amount for estimated growth and inflaction.
2. Rational/ Corporate • This is less concerned with the budget base or past, but are more concerned with using recourses to meet current established objectives.
THE BID SYSTEM
Stage 1 Separate estimate Preparation • Do the separate departments or services prepare next years budget estimates in isolation using the current expenditure aid service levels as a starting point
Sage 2 Aggregation & Comparison • The separate estimates or bids are then aggregated and then total compare with what can be raised via taxation and charges.
Sage 3 Reduction in expenditure levels When the gap between the income and expenditure is narrow proposals are made to reduce the proposed expenditure by a given percentage.
Stage 4 Detail Estimate Reduction When faced prospects to make substantial cuts in proposed expenditure the following guidelines are often used
1. Proposed expenditure is dealt with first. • Cut out new projects • Post pare the start of the projects
2. Revenue expenditure is reduced • • • •
New services are cut New services are delayed Level of services reduced Service deferred to following group.
FINANTIAL PLANNILNG SYSTEM Feature which distinguishes financial planning system from the bid systems include 1.There are multi-year nature 2.The issue of expenditure giddier 3.Joint consideration of capital and revenue budgets documents. 4.Specific and classification in the budget document.
1. Multi-year Nature A medium tom plan say 2-3 commitment and forecast are considered including the annual budget is seen as the first year of the rolling budget.
2. Expenditure Guideline A target growth percent is established for each service prior to the prevention of detailed estimates for a department
3. Joint Consideration of Capital and Revenue • There is no simultaneous consideration of capital and revenue estimates due to the fact that estimates are considered for several periods.
4. Detailed specification and classification Instead of base expenditure incremental we now have Base Exp + InflationReductions+ Committed growth+ New growth. Programming planning based budgeting systems (PPBS)
Traditional budgeting approach which is department is not very suitable for non-profit making organizations such as government ministries.
A major citizen of the traditional approach is at luck of information on the activities actually being performed by the ministries. Cast are analyzed by their nature rather than purpose.
PPBS intended to overcome such criticisms. The aim is to enable the management of non-profit organizations to make more informed decisions about the allocation of recourses to meet the overall objectives of the organization.
Sages 1. Review the objectives and activities undertaken by the organization. 2. Identification of programs which would be undertaken to achieve the objectives. 3. Identification and evaluation of various methods of the objectives of the various programs. 4. Selection of appropriate programs on the basis of costs- benefit principals.
Advantages 1.Forces management to identify activities to provided. 2.Provide information that enable management assess the effectiveness of their plans. 3more efficient allocation of resources.
Budget preparation in public sector Two steps in budget preparation 1.Estimated out-turn for the current year. 2.Estimate for next year
Estimated out-turn Involves forecasting the out-turn for the current year which form the budgetary based for the contraction of budget for next year.
Estimate for next year This is based on the estimated out-turn
Determining the estimated out-turn for the current financial year • Establish the actual to date • Adding estimated expenditure for the reminder of the current year.
Estimating the expenditure for the remainder of the year the following should be considered • The preparation of the year remaining • The anticipated inflation for the remainder of the year • Impact pay awards on stuff costs • Costs of new products to be commenced in the current year.
